In a recent interview with Shyamal Majumdar, Editor of Financial Express, Reserve Bank of India (RBI) Governor Shaktikanta Das addressed several key issues including the relationship between the central bank and the government, the prospect of giving banking licenses to business houses, interest rates, regulatory actions, and the rise in rural consumption.
No Banking Licenses for Business Houses
Governor Das made it clear that the RBI is not considering granting banking licenses to corporate houses at present. He cited global experiences indicating potential conflicts of interest and significant risks associated with related-party transactions when real sector companies enter the banking space.
“Experience world over has shown that when real sector companies enter into the banking space, there are potential conflicts of interest. The problem around related-party transactions is also a major issue,” Das emphasized.
Related-party transactions involve any transaction or relationship where the company or its subsidiaries are participants, and any related party has a direct or indirect interest. The difficulty in monitoring and regulating these transactions makes them highly risky.
When asked if the RBI is currently ruling out corporate entries into the banking sector, Das responded, “At this point, there is no thinking in that direction.”
Banking Penetration and Technology
Governor Das highlighted that India’s banking penetration has become quite extensive. The significance of physical bank branches has diminished due to technological advancements.
“Therefore, what India needs is not proliferation in the number of banks. What India needs is sound, healthy, and well-governed banks, which, we feel, will be able to mobilize savings and meet credit requirements throughout the country through technology,” he stated.
Open to New Applications for Universal Banks
Despite the hesitation towards business houses, Das mentioned that the RBI remains open to new applications for setting up universal banks. He assured that any appropriate and proper application would be thoroughly examined by the RBI.
RBI’s Role and Coordination with the Government
Responding to a comment from former RBI Governor D Subbarao about the RBI being a cheerleader for the government, Das asserted, “At least I am saying from my experience that nobody expects the RBI to be a cheerleader.” He mentioned that during his tenure, he has never faced such demands.
Das praised the smooth coordination between the RBI and the government during the COVID-19 crisis, which helped the country’s economy recover quickly and robustly. While differences in opinion between the RBI and the government are natural, they are resolved amicably.
Interest Rates and Economic Growth
On the topic of interest rates and growth, Governor Das reiterated the RBI’s mandate to maintain price stability while considering growth objectives. Despite the current interest rates, India has experienced robust growth, with an average growth rate of 8.3% over the last three years. The projection for FY2025 is 7.2%, and Das expressed optimism about achieving this target.
Regulatory Actions and Customer Interests
Governor Das defended the recent regulatory actions taken against banks, NBFCs, and other financial institutions for non-compliance with norms. He explained that these actions are taken in the interest of customers. The RBI’s initial approach involves bilateral engagement with non-compliant entities. However, if compliance remains inadequate, business restrictions are imposed to protect customer interests.
Optimism about Rural Consumption
Regarding rural demand, Governor Das expressed optimism about a rise in rural consumption, driven by expectations of a good monsoon season.
In summary, RBI Governor Shaktikanta Das provided insights into the current stance on banking licenses for business houses, the importance of technology in banking penetration, the RBI’s openness to new universal bank applications, and the central bank’s role in maintaining economic stability and growth.
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